Tuesday, September 10, 2013

Geopolitics of RCEP and TPP: Implications for India

Brig (Retd) Vinod Anand,

Senior Fellow, VIF

Regional Comprehensive Economic Partnership (RCEP) is a proposed
grouping that is centered around ten members of ASEAN and includes the
format of ASEAN +6, which includes China, Japan, South Korea, Australia,
New Zealand and India. ASEAN already has free trade agreements (FTA) of
varying types with the six regional economies and the objective of RCEP
is to combine those into one single comprehensive FTA that would
harmonise the existing arrangements. This indeed would be a challenging
task.

On the other hand, the Trans-Pacific Partnership (TPP) is a proposed
regional free trade agreement (FTA) that includes Australia, Brunei,
Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore,
the United States, and Vietnam. While the RCEP is perceived as
China-dominated grouping (though with the centrality of ASEAN), TPP is
viewed as an American driven process which has geo-strategic objectives
besides the economic significance of the grouping.

It can also be easily said that both may be competing for almost the
same set of countries becoming its members and they also have similar
agenda. Some of the ASEAN members are also members of the TPP besides
having a network of FTAs at the bilateral level with many other
countries.

Further, while RCEP differentiates between the different levels of
development while going into the issues of protection of domestic
industries etc and introduction of preferential tariffs and non-tariff
barriers especially for the least developed ASEAN members, the TPP is
expected to go in for more stringent rules with which developing
countries may not be comfortable with. One of the Guiding Principles of
RCEP states that it “will have broader and deeper engagement with
significant improvements over the existing ASEAN+1 FTAs, while
recognizing the individual and diverse circumstances of the
participating countries”.

The TPP, on the other hand, has proposed to link trade, economic and
investment issues with labour laws, environmental protection and
Intellectual Property Rights (IPR) besides other regulatory and
technical issues and work towards WTO plus standards. This means that
TPP will enforce more stringent rules especially concerning labour and
environment than the WTO guidelines. This may not rhyme with the
interests and approaches of most of the ASEAN+ 6 members towards trade
and commerce issues.

Even while moving towards RCEP, there were geo-politics involved when
China was only keen to include ASEAN, Japan and South Korea (ASEAN+3)
leaving out India, Australia and New Zealand. Japan, on the other hand
prevailed upon China to forge the multilateral grouping based on
ASEAN+6.

Further, it is not the political competition between US and China
that would influence a country to join one group or the other but it
would be practical economics that might move a country to join one or
the other grouping or may be both as some countries have already decided
to do so. However, with Singapore, Vietnam, Brunei, Malaysia, Japan,
Australia and New Zealand already in the TPP negotiations, a certain
level of political orientation in their decision to join TPP may be
perceived. It is possible that maritime disputes in South China and East
China Sea may have had impact on some of the members of ASEAN’s entry
into TPP. Philippines, another ASEAN, member is considering entering
into negotiations with TPP. There is also an ongoing debate on whether
ASEAN members joining TPP would weaken the RCEP.

However, it is also possible that pressure from TPP may have a
positive impact on ASEAN and its partners to find a modus vivendi in
intra-ASEAN plus 6 trade and economic differences and usher in the ASEAN
Economic Community by end of 2015.

TPP is a platform which excludes many other countries especially the
largest regional economy of China. Though in principle there is no bar
against China to join the TPP, yet its many clauses on trade, labour,
environment and capital account would prevent China from becoming its
member.

That TPP is the economic component of its pivot to Asia or rebalance
to Asia has been stated by authoritative US interlocutors and mentioned
in the US documents. Even though TPP initiative has origins in 2005, it
has now become a part of the US Asia Pacific strategy. TPP is perceived
to offer several economic, diplomatic, and strategic benefits to the
US. It is expected to provide access to growing markets of Asia,
stimulate US exports growth, protect IPR; diplomatically, it will
demonstrate US commitment and engagement in the region; strategically,
the interest of the countries in the region for maintaining free flow of
trade through SLOCs would increase and they would work together to
reduce potential risks/threats to such trade.

There has been very little debate in India about the merits of RCEP
versus TPP though India has concluded FTA with ASEAN in goods and
services. FTA in services is yet to be operationalized. RCEP does offer
India a good opportunity to intensify its engagement not only with the
ASEAN but also with its other partners in the rubric of ASEAN+6 which
would further complement its Look East Policy. India remains
uncomfortable with some of the rules of TPP relating to environmental
and labour laws and IPR issues which at the current level of development
may have a negative impact on India’s trade.

At the same time, the US has been saying that India is an important
part or an essential lynchpin of its Asia Pacific strategy. Joe Bidden,
the US Vice President, during his visit to Mumbai in his remarks invited
India, though somewhat indirectly, to join America’s TPP effort. Prime
Minister Manmohan Singh, after his visit to Japan in May this year, had
remarked that India is studying implications of joining TPP and was
generally non-committal on benefits or otherwise of the same.

Evidently, India, like some of the ASEAN members, has options to join
both. TPP would include the largest economy besides many other fast
growing economies. It has also the potential to become the largest FTA
with the realisation of the proposed Trans-Atlantic Trade and Investment
Partnership that would include US and European Union. Since TPP is a
living agreement, India may decide to join the TPP later after looking
at how it develops. India would be more inclined to go in for the
economic benefits that can be reaped from joining such groupings rather
than any intangible strategic benefits.